Amkor Reports Third Quarter 2008 Results (Revenue up 4%)

CHANDLER, Ariz.—(BUSINESS WIRE)—October 29, 2008— Amkor Technology, Inc. (NASDAQ: AMKR) today reported its financial results for the third quarter ended September 30, 2008.

 

Third quarter net sales of $720 million were up 4% sequentially from the second quarter of 2008 and up 4% from the third quarter of 2007. Third quarter net income was $34 million, down 48% from the second quarter of 2008 and down 44% from the third quarter of 2007. Third quarter earnings per diluted share was $0.18, a decrease of $0.15 or 45% compared to the second quarter of 2008 and a decrease of $0.12 or 40% compared to the third quarter of 2007. Third quarter results included a charge of $49 million ($48 million net of tax) or $0.22 per diluted share, relating to an interim order issued by the Arbitration Panel on October 27, 2008 relating to Amkors license agreement with Tessera. Excluding the Tessera charge, our results for the third quarter were in line with or higher than previous guidance. The final award will be determined by the Panel following a recalculation of damages by the parties respective experts. Accordingly, Amkors estimate is subject to change and the amounts ultimately owed may differ from our estimate. The Panel also denied Tesseras request to terminate the license. Amkor remains a licensee under the agreement with the rights and benefits of a licensee along with ongoing obligations to pay royalties for covered products.

Our business reflects the trends in the worldwide semiconductor industry generally and is affected particularly by levels of consumer spending, said James Kim, chairman and chief executive officer of Amkor. Third quarter results reflect strong performance in a challenging economic environment. The 4% sequential growth in revenue was below historical seasonal levels, as customers managed their inventories in response to reduced consumer demand. The current uncertainties about global economic conditions make it very difficult for our customers and us to accurately forecast and plan future business activities. Based on current customer forecasts, we expect our fourth quarter revenues to decline 15% to 20% from the third quarter of 2008.

We will remain focused on cash flow generation and are committed to our strategy, initiated late 2005, of reducing costs and controlling capital spending, prudent investment in technology in close collaboration with our customers, and a disciplined approach to pricing, said Kim. We continue to focus on improving the efficiency of our factory operations and administrative functions. Through September 30, 2008 we have reduced our headcount by over 700 employees and expect to save $4 million a quarter prospectively.

Unit shipments were up 18% sequentially to 2.5 billion packaged units while revenues grew by 4%, commented Ken Joyce, president and chief operating officer. Our revenue growth continues to be driven by our advanced package technologies including 3-D and flip chip packages. Revenues for 3-D and flip chip packaging solutions grew 50% for the third quarter compared to a year ago. During the third quarter we also saw a recovery in our leadframe business, which had the highest level of unit growth among all our businesses. Due to their low material costs, leadframe packages sold at lower unit prices than other packages and, as a result, unit growth outpaced revenue growth during the quarter.

Gross margin for the third quarter was 19%, down from 23% in the second quarter of 2008 and down from 25% in the third quarter of 2007, said Joanne Solomon, chief financial officer. Included in our cost of sales for the quarter were $10 million in charges relating to previously announced reductions in workforce as well as an estimate of $45 million for accrued and unpaid royalties owed to Tessera. The $45 million charge for Tessera reduced our gross margin by 6 percentage points. The record volume of unit shipments through our factories and the resulting high capacity utilization rates contributed to our gross margin.

Selling, general and administrative expenses of $60.5 million for the third quarter were down from $67.4 million in the second quarter of 2008 and $64.1 million in the third quarter of 2007 primarily due to lower legal and travel costs during the period.

Third quarter net income included a foreign currency gain of $23 million, principally due to the depreciation of the Korean won and the resulting re-measurement of Amkors Korean employee benefit plan liability. We also accrued approximately $4 million as an estimate of interest owed to Tessera for unpaid royalties.

Amkors effective income tax rate for the third quarter was 32%, which is substantially higher than typical as a result of the accrual for Tessera royalties having little tax benefit. The effective income tax rate also reflects the recording of a valuation allowance of approximately $8 million offsetting certain foreign deferred tax assets. We anticipate the effective tax rate for the full year 2008 will be approximately 13%, said Solomon.

Capital additions totaled $92 million, which was less than anticipated for the third quarter. In response to current industry conditions and a weakening outlook for the fourth quarter and 2009, we have reduced the scope of certain capital projects, said Solomon. While we continue to make capital investments in areas of strategic importance to our company, we constantly make spending adjustments in direct response to customer demand. We expect capital additions to be approximately $45 million in the fourth quarter of 2008, with capital intensity of approximately 13% for the full year 2008. We would expect to manage our business at lower levels of capital intensity during 2009, subject to market conditions and strategic opportunities.

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